What is an emergency fund?
An emergency fund is a stash of money that’s safely put aside, but quick to access in case of… you guessed it, an emergency! 🧑🚒
This emergency could be literally anything, from a broken dishwasher to bigger home repairs, or a sudden dip in income due to illness or job loss. Basically, any f*ckstorm that suddenly comes your way and costs you money 🌪
Why do I need an emergency fund?
Emergency funds are super important within the world of personal finance.
You need an emergency fund because you can’t predict when things may suddenly go wrong, so it’s important to have a pool of money set aside to cover any sudden, unexpected expenses.
Having emergency savings stashed close at hand will allow you to deal with these problems with less risk of getting into financial trouble.
The fund basically acts as a safety net, allowing you to ride out any financial storms with less risk of falling into problem debt. When things go wrong, it's all to easy to rely on your credit card or a high-interest loans to bail yourself out.
How much should I save?
No one likes putting their hard-earned cash away in a designated doom-and-gloom pile, but it’s important that you have the right amount saved in your emergency fund.
The exact amount will depend on your circumstances, but generally speaking, financial experts advise that you have enough money saved in your emergency fund to cover three months worth of living expenses.
This means if, for example, you suddenly lose your job, you’ll have enough to cover your monthly expenses (stuff like rent and everyday essentials) until hopefully you can find something else.
Your emergency fund is like a life raft, which can keep you afloat through potential tough times ⛵️
Don’t have an emergency fund...don’t panic, here’s how to create one!
No matter whether your emergency fund is a little short, or you just don’t have one at all, it’s not too late to start saving some contingency money.
Firstly, you'll need to decide how much you need stashed away in your emergency fund. This is your savings goal 🥅
Once you've established this target, it's then time to work out how much you can afford to put away each month, to start building up your emergency savings little-by little. The task always feels easier if you can break it down into more manageable chunks!
Where should my emergency fund be saved?
Your emergency fund fund should be in a savings account that is easy to access, but separate from your normal bank account... so you’re not tempted to dip into it.
Ideally you'll want a high-yield savings account. This means a savings account with a good interest rate, so you can earn a modest return on the money you have tucked away.
Alternatively, you can download Plum and let us do the hard work for you!
Our AI assistant will save money for you automatically, and our ‘Pockets’ make it easy to separate some of your money into an emergency savings pot. So you can crush your financial goals with the tap of a finger 📲
If you'd like to learn more about Plum then you can check out our website.Download Plum